New Delhi: The trading in electricity is seeing a spike as five poll-bound states, fearful of political backlash, are buying additional power to avoid outage.

There is an upswing in the volume of electricity traded due to an increase in demand from Madhya Pradesh, Rajasthan, Chhattisgarh, Delhi and Mizoram, according to the India Energy Exchange (IEX), one of the two operating power bourses in the country.

“Quantum of electricity traded in the day-ahead market on the IEX does indicate an increase in electricity traded by states in September and October this year,” said Rajesh K. Mediratta, director, business development.

Voters in Chhattisgarh will turn out in two phases on 11 and 19 November, Madhya Pradesh on 25 November, Rajasthan on 1 December, and Delhi and Mizoram on 4 December. The results will be announced on 8 December.

“The earlier elections have indicated a similar trend. The state government tells its distribution companies to ensure that there is no shortage in the run-up to the elections. They in turn procure this power through short-term contracts and by even buying on the exchanges as long-term or mid-term contracts can’t be inked quickly,” said P. Uma Shankar, a former power secretary of India. “This short-term buying will go up and increase volumes and trade on the exchanges.”

A power exchange functions on the lines of a commodity bourse and provides a platform for buyers, sellers and traders of electricity to enter spot and forward contracts. The exchange primarily identifies the price for the following day, which is the electricity sector’s equivalent for the spot price.

From a low of 2.11 billion units, or BU, (billion kilowatt hour, or kWh) in June, the quantum of electricity traded on IEX increased to 2.85 BU in September. However, though the traded volumes fell to 2.645 BU in October, they are significantly higher than in the corresponding period last year. In comparison, the traded volume in June last year was 1.53 BU and 2.27 BU in October.

“There has been a pick-up in power purchases by distribution companies in the last few months because of improved cash flows at some SEBs (state electricity boards), and some pre-election power buying,” UBS Global Equity Research wrote in a 28 October report.

Prices are also firming up. A case in point is the day-ahead prices for northern region bid area comprising Rajasthan, Delhi, Uttar Pradesh and Uttarakhand on the IEX, which saw a high of Rs.2.94 per kWh in September, with the lowest price of Rs.1.77 per kWh in August due to a good monsoon and reservoirs being full.

Madhya Pradesh, Rajasthan, Chhattisgarh, Delhi and Mizoram had round-the-clock electricity in September, according to the Central Electricity Authority, India’s apex power sector planning body. While Madhya Pradesh, Delhi and Rajasthan had no deficit or a one, Chhattisgarh and Mizoram had a deficit of 1% and 2.8%, respectively.

India’s ambitious bailout plan for state government-owned distribution companies announced in September last year is also expected to help improve the finances of SEBs and hence their ability to procure power.

“Power purchases may increase further due to the general election in early 2014,” the UBS report said.

This development comes in the backdrop of exchanges witnessing muted demand due to reasons such as fuel woes. The reason for the decline in the electricity trading market is attributed to the inability of SEBs to buy costly power.

While there is growing competition on the part of electricity suppliers, the demand for traded power is faltering as SEBs across India are saddled with losses because of power theft, technical losses during transmission and distribution, and billing inefficiencies.

“On absolute volume basis, 2.85 BU was traded in September while 2.64 BU was traded in the month of October, which is almost 17% more than volume traded in same month last year,” Mediratta of the IEX said. “We expect some more increase in next few months due to the coming elections.”